Paid Time Off Policy: Should You Bundle Vacation and Sick Time?

Paid time off (PTO) is one of the most valued employee benefits, but managing it isn’t always simple. As workplace policies evolve, companies may be asking, “can employers combine sick time and PTO?” The short answer is yes, but it’s not always the right fit for every business. In this blog, we’ll break down what PTO is, how combined policies work, and what to consider before making the switch.

Understanding Paid Time Off (PTO) vs Vacation and Sick Time

Paid Time Off (PTO) Definition

Paid Time Off, or PTO, is a bank of hours that employees can use for any absence from work while still receiving their regular pay. This time can be used for vacations, personal errands, doctor appointments, or sick days. When companies offer PTO, they typically don't ask for specific reasons why an employee is taking time off.

Vacation Time Definition

Vacation time is paid time specifically designated for employees to take planned time away from work for rest, travel, or personal activities. Traditionally, employees need to request vacation time in advance, and employers may have blackout dates during busy periods when vacation requests aren't approved.

Sick Time Definition

Sick time (or sick leave) is paid time specifically for health-related absences. This includes when employees are ill, need to attend medical appointments, or sometimes when they need to care for sick family members. Unlike vacation time, sick time is often used with little or no advance notice.

How Does PTO Differ from Vacation and Sick Time?

While the definitions above outline what each type of time off covers, the main difference lies in how they're implemented in the workplace:

• Traditional approach: Companies maintain separate banks for vacation days, sick days, and sometimes personal days. Each type has different rules for accrual, usage, and whether unused time rolls over to the next year.
• PTO approach: Companies combine these different types of leave into one bank, giving employees the flexibility to use their time as needed without categorizing the reason.

Are sick days and PTO the same? No, they're not the same in traditional time-off policies. Sick days are specifically for health-related absences, while PTO is a broader category that can include sick time, vacation time, and personal time all in one bank. When employers combine sick time and PTO, the distinction disappears, giving employees more flexibility in how they use their time off.

How Does Combined PTO Work?

So, can employers combine sick time and PTO? Many do by using a PTO bank or flexible leave policy. Here's how combined PTO typically works:

• Single bank of time: Instead of separate allocations for vacation, personal, and sick days, employees receive one pool of paid time off.
• Accrual methods: Employees typically earn PTO based on hours worked, pay periods completed, or years of service.
• Usage flexibility: Employees can use their PTO for any reason, whether planned vacations or unexpected illnesses, without needing to specify why they're taking time off.
• Approval process: While planned time off usually requires manager approval, many companies still allow using PTO without advance notice for illness or emergencies.
• Tracking: With separate policies, employers track each type of absence differently, while a PTO system simplifies tracking to one system.
• Notification: Traditional policies often have different advance notice requirements for vacation versus sick time, while PTO policies typically have consistent rules.

This approach simplifies time off management and gives employees control over how they use their paid leave.

Can you use PTO when you are sick? Absolutely. One of the main benefits of a combined PTO system is that employees can use their time off for any purpose, including illness. When employers combine sick time and PTO, employees don't need to categorize their absences—they simply use time from their PTO bank, whether they're taking a vacation or recovering from the flu.

Is it Better to Have Them Combined or Separated?

Whether employers should combine sick time and PTO depends on company culture and needs. Here are the pros and cons to consider:

Streamlined Administration for Employers

When employers combine sick time and PTO, they enjoy:

• Simpler tracking: One system to monitor instead of multiple time-off categories
• Reduced paperwork: Fewer separate policies to manage and explain
• Clearer budgeting: More predictable planning for employee absences
• Less judgment calls: No need to determine if an absence truly qualifies as "sick time"

Employee Benefits

Employees often appreciate combined PTO because it offers:

• Greater privacy: No need to share personal health information to justify sick time
• More flexibility: Freedom to use time off as needed without rigid categories
• Reduced "use it or lose it" pressure: Less incentive to call in "sick" to avoid losing sick days
• Transparent system: Clearer understanding of available time off

In traditional systems with separate time off categories, sick leave is intended only for health-related absences, not vacations. However, when employers combine sick time and PTO, this distinction disappears—employees can use their PTO for any purpose, including vacations, without having to classify the reason.

Potential Challenges

Before employers combine sick time and PTO, they should consider these potential downsides:

• Attendance issues: Some employees might use all PTO for vacation and come to work sick
• Compliance concerns: Some states and localities mandate sick leave so a PTO plan must comply with these requirements
• Perception problems: Combined PTO can feel like a reduction in benefits if not implemented carefully
• Cultural impact: May signal that the company views illness as equivalent to vacation

Key Things to Know Before Combining PTO

If your company is considering whether employers can combine sick time and PTO, keep these important factors in mind:

State Requirements

Several states and cities have their own sick leave laws that may impact how you structure your policy:

• California, Washington, and New York: These states (among others) require employers to provide paid sick leave.
• Accrual requirements: Some jurisdictions mandate specific sick time accrual rates.
• Documentation: Certain areas have rules about when employers can request doctor's notes.

Always check current state and local laws before implementing a combined PTO policy, as requirements can change.

Clear Communication

When transitioning to combined PTO:

• Explain the benefits to employees
• Provide a written policy
• Address concerns about coming to work sick
• Outline expectations for requesting time off

PTO Payout Considerations

In some states, unused vacation time must be paid out when an employee leaves, while sick time typically doesn't require payout. When employers combine sick time and PTO, the entire bank may need to be paid out upon termination, potentially increasing costs.

Alternative Ways to Structure Time Off Policies

If combining sick time and PTO doesn't seem right for your company, consider these alternatives:

• PTO with separate sick bank: Offer a small bank of PTO days plus a separate allocation of sick days.
• Unlimited PTO: Some companies have moved to an unlimited time off model with appropriate approval processes.
• Floating holidays: Add flexible holidays employees can use on days meaningful to them.

The right approach depends on your industry, workforce needs, and company values.

Why do companies combine sick and vacation time? Companies often combine sick and vacation time into PTO for several key reasons. Administrative simplification is a major factor—tracking one bank of time requires less oversight than managing multiple categories. It also provides employees with greater autonomy and privacy, eliminating the need to disclose personal health information when taking sick time.

Additionally, combined PTO can help companies create a more flexible workplace culture that focuses on productivity rather than time spent in the office. When employers combine sick time and PTO, they're often aiming to create a more modern, streamlined approach to time off management.

Streamline Your PTO Policy with FrankCrum

Managing time off policies can be complex, especially when considering whether employers can combine sick time and PTO while staying compliant with various regulations. As a Professional Employer Organization (PEO), FrankCrum can help you:

• Design a competitive PTO policy tailored to your business needs
• Help ensure compliance with state and local regulations
• Implement efficient tracking systems
• Provide guidance on best practices
• Handle administrative tasks related to time off management

Our HR experts can help you determine whether combining sick time and PTO is right for your organization and assist with seamless implementation that benefits both your company and your employees.

Remember, the right time off policy balances business needs with employee well-being. Whether you choose combined or separate time off categories, clear communication and consistent application are key to successful implementation.